A Guide to Alt-doc-loans
Each borrower is different. Some applicants have a spotless credit record and impeccable loan paperwork and can go after the market’s most competitively priced home loan product. On the other hand, many self employed borrowers struggle with providing adequate documentation, e.g., latest tax returns to prove their income and are consequently not eligible for a regular home loan. In this situation, alternate documentation loans come into the picture.
What is an Alternate Documentation Loan?
Alternate documentation loans, or ‘alt doc’ for short, are loans designed for individuals who cannot provide their tax returns for a number of reasons — lenders offering alt doc loans work with different forms of documents like bank statements and business activity statements among other options. Alt doc loan documentation varies across lenders. It is an excellent alternative for any prospective borrower who cannot meet the strict documentation requirements of a traditional home loan.
How are they different from a traditional home loan?
The main differences between traditional home loans and alt doc loans are:
Income Proof Documentation: Traditional home loans have more strict documentation requirements like three months of most recent payslips or the latest tax returns. Documentation with an alt doc loan application is less rigid, and options like business activity statements and bank statements are usually acceptable. The requirements, however, do vary per lender.
Interest Rate:In the absence of standard home loan documentation, an alt doc loan applicant is viewed as a borrower with a slightly higher risk when compared with a regular home loan applicant. The interest rate for an alt doc loan is, therefore, a little higher.
Documentation for an Alt doc loan
Below is a list of the most common forms of documentation asked of applicants and this varies from lender to lender
- Australian Business Number (ABN) registration for your business
- An accountant declaration of your income
- Six months of Business Activity Statements (BAS)
- Six months of business bank statements
- Six months of tax returns
- Three months of personal bank statements
Alternate Doc Loan Myths
Some common alt doc loan misconceptions are:
- No documentation is needed. As the name suggests, alt doc loans need alternative forms of documents like BAS and bank account statements.
- Alt doc loans are primarily for self-employed professionals and small business owners. If an entrepreneur or self-employed professional can provide their latest 2-year tax returns and have a good credit record, then chances are, they can secure a regular home loan. Alt doc loans are designed for prospective borrowers who can’t provide standard documentation, which includes salaried and self-employed individuals.
- Alt doc loans from major lenders are the best. Several non-major lenders offer alt doc loans with better features. Ensure you do thorough research before making a decision.
- You won’t benefit from professional guidance. The alt doc loan landscape is complex, with hundreds of lenders and offerings. It’s best to go with a mortgage broker who’ll scope the market on your behalf and manage your loan paperwork. And the good news is that mortgage broker services are usually free for borrowers.